Union Finance Minister Nirmala Sitharaman had announced in Budget 2021 Speech that PF Account Contribution of more than 2.5 lakhs will be taxed by the government. Central Board of Direct Taxes has also notified the tax rules on excess EPF contributions.
The circular released by CBDT said, “For the purpose of calculation of taxable interest under sub-rule (1), separate accounts within the provident fund account shall be maintained during the previous year 2021-2022 and all subsequent previous years for taxable contribution and non-taxable contribution made by a person.”
According to government there are more than 123,000 people that have income more than 50 lakhs a year. They get tax free interest from their provident fund accounts. Ministry of Finance has taken this decision because PF Accounts were becoming a surplus parking for high income earners when it is supposed to be retirement fund of a common man.
Five key points that you should know as a taxpayer;
- All the beneficiaries of Voluntary Provident Fund and Employee Provident Fund who have total annual contributions of over Rs 2.5 lakhs will have two separate accounts from April 1, 2022.
- Having two PF Accounts mean that all the contributions made by people who have annual contributions of up to Rs 2.5 lakhs till Financial Year 2022 will be placed in one account. All the transactions including withdrawal and interest will be tax free.
- From Financial Year 2022, another account will be opened where all the subsequent contributions will be placed. If annual contribution will be up to 2.5 lakh then interest earned from that contribution will be taxed by Income Tax Department.
- Experts have appreciated the move of the government as high net worth individuals will not be able to misuse the welfare scheme. For salaried professionals PF is a retirement fund and rich people were wrongly having tax-free income.
- If your annual contribution is more than 2.5 years then you have to mention the interest earned from the contribution while filing income tax return.